Development

Tag: 1031 exchange

  • Reverse and Improvement 1031 Exchanges in Hot Florida Real Estate Markets

    In considering selling an investment property in a red-hot real estate market through a 1031 exchange, owners are rightfully concerned about finding a suitable replacement property. The 45-day identification rules under a 1031 tax deferred exchange can feel like too small a window when supply is limited and there many bidders in the market. (To read more about 1031 exchange process and rules, visit our 1031 exchange rules provide alternatives to the traditional exchange that can be beneficial in a tight market. These alternatives are deemed Reverse 1031 Exchanges and Improvement 1031 Exchanges.
    Reverse 1031 Exchanges
    Under the Treasury Regulations, exchanges must be completed in the proper sequence. This means the sale of the relinquished property must take place before the acquisition of the new or replacement property. However, on occasion, the facts are such that a taxpayer wishes to acquire the new property before the sale or risk losing the desired new property. This reverse sequence is often referred to as a “Improvement Exchange refers to a type of exchange done where some of the proceeds of the sale of the relinquished property will be used to complete improvements on the replacement property so that the taxpayer can finalize the exchange where both the value of the land and the enhanced improvements will count for the amount the taxpayer traded for. Investors may want to build on raw land or put in new heating, ventilating, air conditioning, roof, and windows on an existing property. All of which can qualify if executed properly.
    In this type of exchange, the exchange facilitator parks there placement property on behalf of the taxpayer while the desired improvements are made. Upon the earlier 180 days or the completion of the improvements, the entire value of the real property and improvements is conveyed directly to the taxpayer to complete their exchange.
    For example, an investor owns an apartment rental in Miami, Florida and wants to invest in single-family rentals. However, the only single-family rentals for sale need significant improvements to command a premium rental income. The investor can engage an exchange facilitator to consummate an

  • Reverse and Improvement 1031 Exchanges in Hot Florida Real Estate Markets

    In considering selling an investment property in a red-hot real estate market through a 1031 exchange, owners are rightfully concerned about finding a suitable replacement property. The 45-day identification rules under a 1031 tax deferred exchange can feel like too small a window when supply is limited and there many bidders in the market. (To read more about 1031 exchange process and rules, visit our 1031 exchange rules provide alternatives to the traditional exchange that can be beneficial in a tight market. These alternatives are deemed Reverse 1031 Exchanges and Improvement 1031 Exchanges.
    Reverse 1031 Exchanges
    Under the Treasury Regulations, exchanges must be completed in the proper sequence. This means the sale of the relinquished property must take place before the acquisition of the new or replacement property. However, on occasion, the facts are such that a taxpayer wishes to acquire the new property before the sale or risk losing the desired new property. This reverse sequence is often referred to as a “Improvement Exchange refers to a type of exchange done where some of the proceeds of the sale of the relinquished property will be used to complete improvements on the replacement property so that the taxpayer can finalize the exchange where both the value of the land and the enhanced improvements will count for the amount the taxpayer traded for. Investors may want to build on raw land or put in new heating, ventilating, air conditioning, roof, and windows on an existing property. All of which can qualify if executed properly.
    In this type of exchange, the exchange facilitator parks there placement property on behalf of the taxpayer while the desired improvements are made. Upon the earlier 180 days or the completion of the improvements, the entire value of the real property and improvements is conveyed directly to the taxpayer to complete their exchange.
    For example, an investor owns an apartment rental in Miami, Florida and wants to invest in single-family rentals. However, the only single-family rentals for sale need significant improvements to command a premium rental income. The investor can engage an exchange facilitator to consummate an

  • Reverse and Improvement 1031 Exchanges in Hot Florida Real Estate Markets

    In considering selling an investment property in a red-hot real estate market through a 1031 exchange, owners are rightfully concerned about finding a suitable replacement property. The 45-day identification rules under a 1031 tax deferred exchange can feel like too small a window when supply is limited and there many bidders in the market. (To read more about 1031 exchange process and rules, visit our 1031 exchange rules provide alternatives to the traditional exchange that can be beneficial in a tight market. These alternatives are deemed Reverse 1031 Exchanges and Improvement 1031 Exchanges.
    Reverse 1031 Exchanges
    Under the Treasury Regulations, exchanges must be completed in the proper sequence. This means the sale of the relinquished property must take place before the acquisition of the new or replacement property. However, on occasion, the facts are such that a taxpayer wishes to acquire the new property before the sale or risk losing the desired new property. This reverse sequence is often referred to as a “Improvement Exchange refers to a type of exchange done where some of the proceeds of the sale of the relinquished property will be used to complete improvements on the replacement property so that the taxpayer can finalize the exchange where both the value of the land and the enhanced improvements will count for the amount the taxpayer traded for. Investors may want to build on raw land or put in new heating, ventilating, air conditioning, roof, and windows on an existing property. All of which can qualify if executed properly.
    In this type of exchange, the exchange facilitator parks there placement property on behalf of the taxpayer while the desired improvements are made. Upon the earlier 180 days or the completion of the improvements, the entire value of the real property and improvements is conveyed directly to the taxpayer to complete their exchange.
    For example, an investor owns an apartment rental in Miami, Florida and wants to invest in single-family rentals. However, the only single-family rentals for sale need significant improvements to command a premium rental income. The investor can engage an exchange facilitator to consummate an

  • Reverse and Improvement 1031 Exchanges in Hot Florida Real Estate Markets

    In considering selling an investment property in a red-hot real estate market through a 1031 exchange, owners are rightfully concerned about finding a suitable replacement property. The 45-day identification rules under a 1031 tax deferred exchange can feel like too small a window when supply is limited and there many bidders in the market. (To read more about 1031 exchange process and rules, visit our 1031 exchange rules provide alternatives to the traditional exchange that can be beneficial in a tight market. These alternatives are deemed Reverse 1031 Exchanges and Improvement 1031 Exchanges.
    Reverse 1031 Exchanges
    Under the Treasury Regulations, exchanges must be completed in the proper sequence. This means the sale of the relinquished property must take place before the acquisition of the new or replacement property. However, on occasion, the facts are such that a taxpayer wishes to acquire the new property before the sale or risk losing the desired new property. This reverse sequence is often referred to as a “Improvement Exchange refers to a type of exchange done where some of the proceeds of the sale of the relinquished property will be used to complete improvements on the replacement property so that the taxpayer can finalize the exchange where both the value of the land and the enhanced improvements will count for the amount the taxpayer traded for. Investors may want to build on raw land or put in new heating, ventilating, air conditioning, roof, and windows on an existing property. All of which can qualify if executed properly.
    In this type of exchange, the exchange facilitator parks there placement property on behalf of the taxpayer while the desired improvements are made. Upon the earlier 180 days or the completion of the improvements, the entire value of the real property and improvements is conveyed directly to the taxpayer to complete their exchange.
    For example, an investor owns an apartment rental in Miami, Florida and wants to invest in single-family rentals. However, the only single-family rentals for sale need significant improvements to command a premium rental income. The investor can engage an exchange facilitator to consummate an

  • Reverse and Improvement 1031 Exchanges in Hot Florida Real Estate Markets

    In considering selling an investment property in a red-hot real estate market through a 1031 exchange, owners are rightfully concerned about finding a suitable replacement property. The 45-day identification rules under a 1031 tax deferred exchange can feel like too small a window when supply is limited and there many bidders in the market. (To read more about 1031 exchange process and rules, visit our 1031 exchange rules provide alternatives to the traditional exchange that can be beneficial in a tight market. These alternatives are deemed Reverse 1031 Exchanges and Improvement 1031 Exchanges.
    Reverse 1031 Exchanges
    Under the Treasury Regulations, exchanges must be completed in the proper sequence. This means the sale of the relinquished property must take place before the acquisition of the new or replacement property. However, on occasion, the facts are such that a taxpayer wishes to acquire the new property before the sale or risk losing the desired new property. This reverse sequence is often referred to as a “Improvement Exchange refers to a type of exchange done where some of the proceeds of the sale of the relinquished property will be used to complete improvements on the replacement property so that the taxpayer can finalize the exchange where both the value of the land and the enhanced improvements will count for the amount the taxpayer traded for. Investors may want to build on raw land or put in new heating, ventilating, air conditioning, roof, and windows on an existing property. All of which can qualify if executed properly.
    In this type of exchange, the exchange facilitator parks there placement property on behalf of the taxpayer while the desired improvements are made. Upon the earlier 180 days or the completion of the improvements, the entire value of the real property and improvements is conveyed directly to the taxpayer to complete their exchange.
    For example, an investor owns an apartment rental in Miami, Florida and wants to invest in single-family rentals. However, the only single-family rentals for sale need significant improvements to command a premium rental income. The investor can engage an exchange facilitator to consummate an

  • Reporting a 1031 Exchange on IRS Form 8824

    After the real estate transactions in a 1031 exchange have been completed, there is a final step to report the exchange to the IRS so that the deferral is recognized. 1031 like-kind exchange, Form 8824 will need to be prepared and filed with the Internal Revenue Service (IRS).
    What is Form 8824?
    Titled, “Like-Kind Exchanges (and section 1043 conflict-of-interest sales),” Form 8824 serves two primary purposes:

    To allow business owners to report the deferral of gains through Section 1031 exchange, including:

    Description of the like-kind property (given up)
    Description of the like-kind property (received)
    Date the given-up property was originally acquired
    Date the received property was actually received

    Part one also asks if any like-kind property was either sold to or purchased from a related party. If the answer is yes, then the form’s preparer must complete Part II. If the answer is no, then the preparer may skip Part II and move on to complete Part III.
    Part II – Related Party Information
    It’s interesting to note, this section does not require any calculations. It simply asks for some basic information about the related party transaction, including:

    The related party’s name, address and relationship
    Timing of any dispositions (by the related party) of the property received from property owner
    Timing of dispositions related to the property acquired

    Background on Related Parties
    Part II addresses very specific concerns regarding what is known as basis shifting. In these transactions, 1031 Exchange Qualified Intermediary and facilitates 1031 exchanges. Always consult your CPA or tax advisor for advice pertaining to your specific tax situation. For more information, visit www.accruit.com or call (800) 237-1031.

     

  • Reporting a 1031 Exchange on IRS Form 8824

    After the real estate transactions in a 1031 exchange have been completed, there is a final step to report the exchange to the IRS so that the deferral is recognized. 1031 like-kind exchange, Form 8824 will need to be prepared and filed with the Internal Revenue Service (IRS).
    What is Form 8824?
    Titled, “Like-Kind Exchanges (and section 1043 conflict-of-interest sales),” Form 8824 serves two primary purposes:

    To allow business owners to report the deferral of gains through Section 1031 exchange, including:

    Description of the like-kind property (given up)
    Description of the like-kind property (received)
    Date the given-up property was originally acquired
    Date the received property was actually received

    Part one also asks if any like-kind property was either sold to or purchased from a related party. If the answer is yes, then the form’s preparer must complete Part II. If the answer is no, then the preparer may skip Part II and move on to complete Part III.
    Part II – Related Party Information
    It’s interesting to note, this section does not require any calculations. It simply asks for some basic information about the related party transaction, including:

    The related party’s name, address and relationship
    Timing of any dispositions (by the related party) of the property received from property owner
    Timing of dispositions related to the property acquired

    Background on Related Parties
    Part II addresses very specific concerns regarding what is known as basis shifting. In these transactions, 1031 Exchange Qualified Intermediary and facilitates 1031 exchanges. Always consult your CPA or tax advisor for advice pertaining to your specific tax situation. For more information, visit www.accruit.com or call (800) 237-1031.

     

  • Reporting a 1031 Exchange on IRS Form 8824

    After the real estate transactions in a 1031 exchange have been completed, there is a final step to report the exchange to the IRS so that the deferral is recognized. 1031 like-kind exchange, Form 8824 will need to be prepared and filed with the Internal Revenue Service (IRS).
    What is Form 8824?
    Titled, “Like-Kind Exchanges (and section 1043 conflict-of-interest sales),” Form 8824 serves two primary purposes:

    To allow business owners to report the deferral of gains through Section 1031 exchange, including:

    Description of the like-kind property (given up)
    Description of the like-kind property (received)
    Date the given-up property was originally acquired
    Date the received property was actually received

    Part one also asks if any like-kind property was either sold to or purchased from a related party. If the answer is yes, then the form’s preparer must complete Part II. If the answer is no, then the preparer may skip Part II and move on to complete Part III.
    Part II – Related Party Information
    It’s interesting to note, this section does not require any calculations. It simply asks for some basic information about the related party transaction, including:

    The related party’s name, address and relationship
    Timing of any dispositions (by the related party) of the property received from property owner
    Timing of dispositions related to the property acquired

    Background on Related Parties
    Part II addresses very specific concerns regarding what is known as basis shifting. In these transactions, 1031 Exchange Qualified Intermediary and facilitates 1031 exchanges. Always consult your CPA or tax advisor for advice pertaining to your specific tax situation. For more information, visit www.accruit.com or call (800) 237-1031.

     

  • To Drop and Swap or Swap and Drop?

    That is the question.
    We probably answer at least one phone call or email every day regarding how members of a partnership, limited liability company or other form of partnership who want to sell a property and go their separate ways may do so and still use a essential requirement for the exchange.
    The conventional wisdom— and in most cases, the safest approach—is to have the partnership proceed to closing of the old property and have Accruit, as the Qualified Intermediary, receive the exchange value per the 1031 Tax Deferred Exchange agreement. After the closing of the relinquished property, the partners will identify replacement properties which may be different types, i.e. multi-family residential, commercial/warehouse or any other property that is investment or business use property. Accruit will then acquire the various replacement properties on behalf of the partnership/taxpayer. The partners then agree to a special allocation within the partnership to track the profits and losses for the properties and allocate them to the rearranged partner groups during the subsequent holding period. After the partnership has held the properties in that arrangement for at least a couple of years, it will then distribute the property to the partners as tenants in common or to the new partner groups as new partnerships.
    Keep in mind, there are still some adventurous souls who engage in drop and swap transactions involving short holding periods after the redemption of the partnership interests in return for the tenancy in common interests that are exchanged. They have relied on a long line of taxpayer-friendly federal cases such as In the Matter of the Appeal of Sharon Mitchell (OTA Case No. 18011715) (January 18, 2020). Admittedly, when looking at these transactions either through the lens of Federal or state law and none of the partners are cashing out but doing exchanges, albeit into different property , the continuity of investment argument should be persuasive.
    The answer to the opening question, unfortunately, is there is no clear test for the period of qualified use prior to a sale and exchange. It’s always important for anyone stuck in a partnership and contemplating an exchange with partners of diverging interests to talk to their tax advisors as soon as possible to avoid the pitfalls outlined above.

  • To Drop and Swap or Swap and Drop?

    That is the question.
    We probably answer at least one phone call or email every day regarding how members of a partnership, limited liability company or other form of partnership who want to sell a property and go their separate ways may do so and still use a essential requirement for the exchange.
    The conventional wisdom— and in most cases, the safest approach—is to have the partnership proceed to closing of the old property and have Accruit, as the Qualified Intermediary, receive the exchange value per the 1031 Tax Deferred Exchange agreement. After the closing of the relinquished property, the partners will identify replacement properties which may be different types, i.e. multi-family residential, commercial/warehouse or any other property that is investment or business use property. Accruit will then acquire the various replacement properties on behalf of the partnership/taxpayer. The partners then agree to a special allocation within the partnership to track the profits and losses for the properties and allocate them to the rearranged partner groups during the subsequent holding period. After the partnership has held the properties in that arrangement for at least a couple of years, it will then distribute the property to the partners as tenants in common or to the new partner groups as new partnerships.
    Keep in mind, there are still some adventurous souls who engage in drop and swap transactions involving short holding periods after the redemption of the partnership interests in return for the tenancy in common interests that are exchanged. They have relied on a long line of taxpayer-friendly federal cases such as In the Matter of the Appeal of Sharon Mitchell (OTA Case No. 18011715) (January 18, 2020). Admittedly, when looking at these transactions either through the lens of Federal or state law and none of the partners are cashing out but doing exchanges, albeit into different property , the continuity of investment argument should be persuasive.
    The answer to the opening question, unfortunately, is there is no clear test for the period of qualified use prior to a sale and exchange. It’s always important for anyone stuck in a partnership and contemplating an exchange with partners of diverging interests to talk to their tax advisors as soon as possible to avoid the pitfalls outlined above.